Manufacturer of Lucky Strike can unite with Camel’s producer

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British American Tobacco (BAT), which produces cigarettes under the brand of Lucky Strike, offered $47 billion for the purchase of its rival Reynolds American, which produces the legendary cigarettes – Camel. In the case of the deal, it will be the largest tobacco company by sales in the world.

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BAT has offered $20 billion in cash, the remaining $27 billion are offered in the form of shares. BAT plans to buy 57,8% of Reynolds American for that amount.

Currently, BAT owns a 42.2% stake in Reynolds.

“The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and Next Generation Products company. BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future,” BAT’s Chief Executive, Nicandro Durante, said.

The merger with Reynolds will lead to the creation of the world’s largest (in terms of turnover and operating profit) public tobacco company (now this status belongs to Philip Morris International Inc.), which will become the leader in the US market and significantly strengthen its position in the markets of Middle East, Africa, Asia and South America.

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Taking full control over Reynolds, the manufacturer of Lucky Strike will be able to consolidate the company’s revenues and save $400 million.

The deal is due to the attractiveness of the US market where the average price of cigarettes in relation to GDP is still lower than in many other Western markets.

Analysts of the largest international financial conglomerate Citigroup Inc believes that the transaction can take place in the near future, as it does not violate antitrust law and two tobacco companies are not in disagreement.

Four largest-selling brands of BAT have shown mixed trends: Dunhill sales declined slightly, while sales of Kent, Lucky Strike and Rothmans, on the contrary, increased.

As of the third quarter of 2016, Reynolds American owns 34.6% of tobacco market. The company produces cigarettes under brands like Newport, Camel, Pall Mall and Natural American Spirit.

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